S&P 500 Index Up +8.3% in October! Unfortunately, That’s Only Half The Story...

The media has been abuzz since the end of October given the stellar performance of the S&P 500 Index, up +8.3 %, one of the best monthly returns in years. The gains notably survived hints from the Federal Reserve policy makers that interest rates could rise in December, as well as less than stellar earnings reported by many companies.The media love a good story – actually, the media need a good story - and unfortunately, “up +8.3%” is only half the story. So, what's the other half of the story? What’s the catch?

The catch is what happened in in the months prior to October:

  • The S&P 500 Index peaked in on May 21th, 2015, closing at an all-time high of 2,130.82. As we entered August, market jitters about the specter of higher interest rates resulted in a peak-to-trough (top-to-bottom) loss of -12.4% (peak [May 21st] to trough [August 25]). By the end of August, the market had recouped a portion of these losses, ending down -6.3% for the month.

  • However, the uncertainty continued through September, with the S&P 500 Index down another -2.6%.

So, in total, as of October 1, the S&P 500 was down -9.9% from its peak on May 21.

If you feel like there was a lot of “zigging and zagging,” you would be correct - and the chart below confirms this.

S&P 500 Index Montly Returns - PNG 2

S&P 500 Index Montly Returns - PNG 2

One consideration when “deciphering the pundits’ comments” is to acknowledge that in spite of October’s spectacular performance, we are still not back to highs of May 2015 – in fact, as of 11/3/15, we are still approximately 1% below these levels.

What are the implications for your investment account?

  • Buy & Hold Investors: If you were 100% invested in the S&P 500 Index, and a “buy and hold” investor - neither of which we recommend as a “strategy”, by the way - your account value will look about what it looked like at the end of July.

  • Active Investment Management Investors: If you are one of our clients, where we apply an active approach to managing your exposure to the markets, your account value, in most instances, will look about what it looked like at the end of July.

You may be asking “why do we go to the trouble to use an active, modeled investment approach if you ended up in a similar place as the “buy and hold” investors?”

It's true - in this case, the results are fairly similar. However, had August’s and September's sell-offs been a harbinger of more declines (and a possible bear market), using a disciplined, modeled approach to reduce exposure to equities during such periods seeks to preserve our clients' wealth.  As it turned out, the S&P 500 Index recovered – at least for now - and our models have reflected this price recovery - as of the first trading day in November, our portfolios are more fully invested in equities.

As we have mentioned in prior posts, bull market’s rarely die of old age. And the market tends to move up into the end of the year as money managers strive to “window dress” their returns. That said, the Federal Reserve’s stimulus programs (low interest rate and Quantitative Easing), which have been instrumental in propelling this bull market, may be coming to an end; as a result, equity markets may encounter headwinds.   However, if other central banks around the world continue to lower interest rates to bolster their economies, US equity markets may continue their march upward.  We will need to be patient to see how all unfolds over the coming months, however, regardless of market direction, we are confident that our models will help guide us in managing our clients' exposure to the markets.

On a closing note, the “moral” of this blog is to not believe everything you read – or hear – from media pundits. The media tend to live and die by headlines that sell.  Alexis Advisors is here to be a resource – and we do not live and die by headlines. Rather, we seek to provide investors with a “no spin zone.”

Want to learn more? Join the conversation.

Be well,






Core Tenets

Core Tenets

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